5 Automotive Supply Chain Challenges Facing the Industry
The automotive supply chain has long been one of the most complex in the world, and is now responsible for the employment of as many as 78,000 individuals in the UK alone.1 As globalisation continues to drive change in the sector, with global automakers outsourcing 30-60% of their parts to China, vulnerabilities and complexity are likely to increase.2
Brexit has paired with the challenges posed by COVID-19 to highlight existing issues and create new obstacles. The closure of China’s automotive industry at the start of the pandemic was especially problematic, leading to as many as 1.7 million missing automotive parts.3 Meanwhile, tariffs and regulatory changes caused by Brexit are creating further operational concerns.
In this article, we’re going to consider the most pressing challenges currently facing automotive supply chains. Let’s get started.
1. A lack of visibility
On average, vehicles consist of 30,000 components, and rely on supply chains that come together as and when production requires.4 As a result, blind spots at any stage can have significant knock-on effects for the entire procurement process, often in the shape of inventory shortages, and sometimes significant delays.
It’s hardly surprising, then, that 81% of the automotive industry is concerned about visibility, compared with 70% in other sectors.5 This is due in part to the industry’s ‘just-in-time’ operations, which mean one mistake or lack of oversight can create a ripple effect of disruption.
With this in mind, parties across supply chains will need to increase focus on:
- Central views of all communications
- Tracking all parts at any stage of their supply journey
- Streamlined processes across entire supply chains
- Predictive analytics, and the ability to communicate findings in real-time
2. Productive partnerships
Extensive, global supply chains are powering the automotive industry, but long distances also leave productive partnerships at significant risk. Inefficient communications across varying standards, protocols, and software are especially problematic, rendering even platforms that aim to address this problem obsolete.
Worse, lacking transparency due to these operational issues can lead to misunderstandings that either prevent the true benefits of partnerships from being felt or, in some cases, spell the end for trade relationships altogether.
Supplier relationship management (SRM) that centres around openness, trust, and communication plays a key role in smoothing these concerns. That said, the need for seamless communication means that SRM has to utilise software that enables real-time communications that long-distance partners can access and interact with.
3. Environmental concerns
Environmental concerns have been at the top of the automotive agenda since Volkswagen’s ‘diesel dupe’ back in 2015.6 These focuses have sped into the fast lane as consumer concerns, and increasingly strict emissions regulations, mean that green initiatives are not only expected but imperative for manufacturers and respective partners.7
Emissions declines as high as 7%8 across lockdowns, and electric vehicle (EV) registrations that surged by 185%9 during that same period, have created a landscape where the industry must prioritise these concerns.
This is true in the short term in regards to existing partners, and in the long term, which will require onboarding of new suppliers that make EVs a reality and put emissions regulations into practice.
Unfortunately, location-based differences, alongside complex onboarding, mean that these improvements are easier said than done. Existing third-party logistics partners are especially at risk of failing to realise regional environmental focuses unless specific efforts, and software, are put in place to communicate and draw attention to them.
4. The impact of Covid-19
30-50% decreases in automotive spending were just the tip of the pandemic iceberg for the industry.10 Disruptions have led to chip shortages that facilitated 40% output cuts at industry leaders like Volkswagen and Toyota.11
This lasting impact on the supply of raw materials highlights the volatilities inherent with global supply chains that, moving forward, need to focus on resilience in the face of unexpected challenges.
Unfortunately, this expectation comes at a time when the costs of the pandemic are still being felt, leading many manufacturers to overlook long-term trajectories in a still-uncertain present. Even moving into a so-called post-pandemic ‘new normal’ will be difficult until a longer-term view is finally taken with regards to resilience.
Improved communication can help to highlight upcoming supply shortages in the future. However, without flexible processes and continuity plans to overcome them, these warnings will be next to useless. Hence, supply chains also need to prioritise the specific implementation of resilience processes, including:
- Monitoring and alerts for real-time supply issues
- Simplified access to supply data and communications
- Flexible, fast onboarding where necessary
- Trusting, communication-driven, supplier relationships
5. Increasing bureaucracy
Brexit-based overhauls have convoluted already complex European automotive supply. Difficult-to-navigate customs bureaucracy has led to longer journey times, added risks of delay, and general inefficiency. Together, these issues are making Europe’s once-booming automotive sector less appealing for prospective international trade and investment.
Predictions that industry-saving regulatory compliance is still a long way off work with these setbacks to highlight the need for individual manufacturers to find a way through increasingly lengthy red tape. Avoiding potential delays and resulting cost increases as high as 1.0-2.5%12 is especially reliant on optimised supply chains that operate around:
- Faster, flexible onboarding of new, compliant suppliers
- Immediate communication of regulatory developments
- Visibility across delayed or lost parts
This way, even as industry-wide gaps emerge, manufacturers can better enable inter-partner regulatory compliance that keeps the wheels turning, and ensures manageable hurdles that are foreseen, shared, and integrated into processes.
Building resilient and productive supply chains
Disparate automotive supply chain challenges circle back to the need for efficient, streamlined processes and communications. Since the 1960s, electronic data interchange (EDI) has facilitated the automated exchange of information across global automotive supply chains.
Unfortunately, convoluted onboarding processes and numerous different protocols have meant that legacy EDI solutions have struggled to deliver the levels of resilience and productivity needed in modern supply chains.
At Data Interchange, we have decades of experience helping businesses implement effective EDI systems. Now, looking to the future of automotive supply chains, we’ve developed a modern form of EDI that we like to call EDI-as-a-Service.
This hybrid approach to EDI utilises managed services and cloud-based tools to meet the complexities of global supply chains. Businesses within the automotive industry that make the transition to EDI-as-a-Service can access a range of benefits that can assist in overcoming the industry-specific challenges detailed above. These include:
- Increased flexibility: The accommodation of various protocols and standards enables swift, agile onboarding, thereby allowing a range of supplier familiarity with EDI.
- Enhanced visibility: Dashboards and cloud-based tools make EDI-as-a-Service equipped to provide a one-source focus to supply chain digitisation.
- Simplicity: Smooth supply chain integration processes remove unnecessary complexity, whilst cloud-based EDI facilitates access across the supply chain.
- Greater control and planning capabilities: Each of the above contributes to businesses’ ability to plan and control the supply chain, allowing more resilient and productive processes to be put in place.
If you’re looking to overcome automotive supply chain challenges and gain a competitive edge for your businesses in the process, get in touch today.
Suggested reading: To learn more about EDI-as-a-Service, check out our blog — How EDI-as-a-Service Changes Supply Chain Best Practices in 2021
12021 Automotive Sustainability Report
2Opinion: Covid-19 impact on global auto industry – Need for more resilient supply chains
3Coronavirus damages China’s auto industry as outbreak worsens
4Top 4 Automotive Supply Chain Challenges and Solutions
5Smart Solution for Supply Chain Challenges in Automotive Industry
6Volkswagen: The scandal explained
7CO₂ emission performance standards for cars and vans
8Climate change: Covid drives record emissions drop in 2020
9UK EV registrations up 185% in 2020, despite impact of Covid-19
10Global Auto Production in 2020 Severely Hit By COVID-19 Crisis With a 16% Drop in World Auto Production
11Volkswagen and Toyota face production cuts due to chip shortage
12Car price increases still likely with post-Brexit trade deal